In this case, I think the Post knows exactly what they are doing. In addition to the dominated option (4 weeks for $9.18), they have also included two anchor products - $2 for a single issue and $5 for a back issue.

Adding the .18 to the dominated option also gives it an air of precision and simultaneously draws your attention to it. I originally thought this was a bad idea and I wrote Wayne telling him that. I have changed my mind, I think it is brilliant.

I also find it intriguing that they do not list the price per issue of each of the options. Most subscription pricing options provide this. I think not providing it is the smarter idea.

The lesson for professional firms is that you can use the dominated option to influence customers to a higher or lower level (see the decoy effect), but only if you provide options in your proposal. A range of hours from low to high for the same result is not
options pricing. In fact, if anything, it is confusing to the customer.

Imagine if instead of a price on an item in a supermarket, they just gave us a range. A loaf of bread would be listed as between $2 – $4. Once you got home from the store (I originally was going to write ‘got to the cashier,’ but that is not accurate), they would send you a final bill indicating that you paid $3.75 for loaf. It sounds crazy, but this is exactly what professionals do when they provide a prospect with a range of hours proposal. It is, in effect, an infinite number of options. It is confusing to the customer.

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Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy for Sage Business Solutions in North America. He is the co-host with Ron Baker of the Voice America Business Channel's The Soul of Enterprise. Prior to joining Sage Software, Ed worked with Tipping Point Advisors, an organization dedicated to the growth and development of software implementation companies. Before that, he co-founded Third Wave Business Systems, a Microsoft Business Solutions Partner, in 1996, which grew to 20 team members and 5 million in revenue. At Third Wave, Ed developed the implementation methodology and managed the front and back office consulting teams. Ed is senior fellow at the VeraSage Institute, a think tank dedicated to the elimination of the billable hour in all professional organization. He is a frequent contributor to industry publications and has spoken at many conferences worldwide.

2 thoughts on “Decoy Effect Pricing Example”

Regarding your bread example, Ed, the more accurate truth is that the store puts $2 – $4 on the bread but the customer gets an invoice for $7.15 and then sits on the invoice for 90+ days until the store calls up wondering where their money is. 😉